Filing for AY 2024-25 is coming soon
Filing for AY 2024-25 is coming soon
Keep calm and sign up for early access to our super filing platform

Short Term Capital Gain on Shares (Section 111A of Income Tax Act) - STCG Tax Rate & Calculation

Updated on: Jul 22nd, 2023

|

6 min read

social iconssocial iconssocial iconssocial icons

Any profit or gain that arises from the sale of shares are treated as Capital gains under Income Tax Act. Capital gains are further classified as short term or long term based on their holding period. Gains from equity shares listed on a recognised stock exchange having a holding period of less than 12 months are considered as short term capital gains. Short-term capital gains from shares are classified into two parts:

  • Short term capital gains as per section 111A
  • Short term capital gains other than section 111A 

STCG Tax Rate on shares (Section 111A)

Short-term capital gain under Section 111A is taxed at a concessional rate of 15% with applicable cess.

Short Term Capital Gains (STCG) under Section 111A

1. Applicable on certain assets:

Section 111A is applicable in the case of STCG on the purchase or sale of:

  • equity shares or 
  • units of equity-oriented mutual fund or 
  • units of business trust

2. Conditions for availing concessional rate under Section 111A 

  • Transferred through a recognized stock exchange 
  • Such transaction is liable to securities transaction tax (STT)

Exception: Transactions undertaken on an International Financial Service Center (IFSC) would be taxable at the concessional rate of 15% even though STT is not leviable.

3. Adjustment of STCG u/s 111A against basic exemption limit

If you are an Indian resident as per income tax and your total income after all the deductions is lower than the basic exemption limit (i.e. basic exemption limit not exhausted) then you are entitled to set off your short-term capital gains and long-term capital gains, against the shortfall in your basic exemption limit and only the balance amount will be taxed at 15%.

Let us understand this by an illustration –

Ajay has a taxable salary income of only Rs 1 lakh and a short-term capital gain on the sale of equity shares of Rs 4 lakh. He also has Rs 50,000 as Income from Other Sources. Calculate STCG Tax applicable. 

Salary IncomeRs 1 lakhs
STCGRs 4 lakhs
Income from Other SourcesRs 0.5 lakhs
Total incomeRs 5.5 lakhs

You have to add income from other sources of Rs 50,000 to the total taxable salary thereby making it Rs 1.5 Lakh. As there is a shortfall in the absorption of the basic income tax exemption limit of Ajay by Rs 1 lakh, short-term capital gain on the sale of equity can be adjusted to the extent of Rs 1 lakh. 
Tax will be applicable on a short-term capital gain of Rs 3 lakh (Rs 4 lakh – Rs 1 Lakh) at a flat rate of 15%.

Points to be noted- 

  • If your total income including STCG after applicable tax deductions is below Rs 2.5 Lakh, then your total tax liability is nil and also no liability will arise us/ 111A as deduction up to the basic tax exemption limit is allowed
  • However, if your total income including STCG is more than Rs 2.5 Lakhs, then a flat 15% on STCG will be levied. (However, rebate u/s 87A will be available if total income is less than 5 lakhs i.e. up to Rs 12,500 of tax liability as per current income tax regime)

4. No Deductions from STCG under section 80C-80U

Income tax law does not allow any deduction under section 80C to 80U from the short term capital gains referred to section 111A. However, the investor can claim such deduction on short term capital gains other than those covered under section 111A. 

Instances of STCG covered under Section 111A

  • STCG on sale of equity shares of a listed company through the recognised stock exchange and liable to STT
  • STCG on sale of units of equity-oriented mutual funds through a recognised stock exchange and liable to STT
  • STCG on sale of units of business trust
  • STCG on sale of equity shares, units of business trust or units of equity-oriented mutual funds through a recognised stock exchange located in IFSC (International Financial Service Centre) where consideration is paid in foreign currency, even if STT is not liable.

Example of STCG under Section 111A

  1. Ajay sold equity shares of XYZ Ltd (Indian company) on BSE at a profit after holding them for a period of 8 months. What will be the rate applicable on the STCG?
    As the holding period is less than 12 months gains are classified as short term capital gains.  The equity shares are transferred through a recognised stock exchange (STT being paid ),  this case is covered under Section 111A.  STCG will be charged at 15% (plus surcharge and cess as applicable).
  2. Puneet sold units of a mutual fund (with more than 65% corpus vested in equity) through NSE at a profit after holding them for a period of 11 months. What will be capital gains tax applicable?
    Ans-The sale of mutual funds is covered under Section 111A as the fund is an ‘equity-oriented mutual fund’. As unites were held for less than 12 months, gains are considered as short term capital gains. STCG will be charged at 15% (plus surcharge and cess as applicable).
  3. Iyer sold units of a debt fund after holding them for a period of 10 months. What will be the capital gain tax applicable on profits?
    Ans.: The capital gains in this case are not covered under Section 111A as Iyer sold units of a debt fund. STCG other than those applicable to Section 111A are chargeable to tax at the normal rate applicable.  The normal rate applicable will be determined on the basis of his total income.

inline CTA
File your returns in just 3 minutes
100% pre-fill. No manual data entry

 

CONTENTS

Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

Cleartax is a product by Defmacro Software Pvt. Ltd.

Company PolicyTerms of use

ISO

ISO 27001

Data Center

SSL

SSL Certified Site

128-bit encryption